Chinese CFOs, treasurers less attracted by Hong Kong

Chinese treasurers’ interest in Hong Kong as a corporate treasury centre has cooled in 2018, according to a recent ABR survey

HONG Kong is still the most favoured location for Chinese corporates looking to set up overseas treasury operations, as its proximity to China and advanced market infrastructure make it an ideal location. However, recently Chinese corporates’ interest in Hong Kong has cooled, according to Asset Benchmark Research’s (ABR) recent Treasury Review.

Fewer Chinese treasurers (44%) are planning to set up finance or treasury management departments in Hong Kong in 2018 than those which planned to do so in 2017 (66%), according to the ABR survey.

In June 2016 the Hong Kong government changed the tax law to reduce the profits tax rate on specified activities of qualifying corporate treasury centres by 50% to 8.25%. The change of profit tax drove robust interest from Chinese corporates in in 2017, which has since cooled in 2018.

The Hong Kong government has been pushing its corporate treasury centre (CTC) policy since late 2015 and encouraging Chinese corporates to set up CTCs in Hong Kong. In 2017, over 400 companies had their treasury operations in Hong Kong.

After Hong Kong, respondents favoured Singapore (22%), elsewhere in Asia-Pacific (20%) and Europe (20%) roughly equally. Chinese treasurers were less interested in North America (11%) and Australia (7%). Respondents could select more than one region.

Source: Treasury Review 2018, Asset Benchmark Research

However, many of the Chinese respondents (82%) said that they had no plans to set up overseas treasury operations in the first place but cited “more overseas business” (64%) as the most important incentive for setting up overseas treasury operations in the future.

Most Chinese corporate treasurers and CFOs also said that hedging markets exposure (FX, rates) is the most important treasury task driven by the appreciating renminbi against US dollar in 2017 and potential interest rate hikes in 2018.

Source: Treasury Review 2018, Asset Benchmark Research

“It is not an easy job to manage the FX risk,” says a CFO at a China subsidiary of a German manufacturing company, in an interview with The Asset. “A lot of documents are required when we apply for FX forward. The positions we hedge will be reasonable.”

In the light of a capital controls in China, funding overseas operations ranked second as the top treasury priority among Chinese corporate treasurers and CFOs.

“Our treasury focus will be factoring and buyer finance (overseas),” says a finance manager of a large Chinese telecommunication company. “Our overseas subsidiary has the autonomy over their treasury operations, but the headquarter has to know the decision.”

Background
Since 2014, Asset Benchmark Research has gathered the views of corporate treasurers and CFOs in Asia on their current and planned treasury activities in the annual Treasury Review.

The survey asks about a range of topics such as their treasury set up, bank relations; risk management; review of treasury solutions and their outlook for the year ahead. Corporates are asked about the challenges they face in their treasury operations both from a daily operational and long-term strategic perspective.

There is also an emphasis on reviewing how corporates leverage technology in their business either to automate payables, improve reconciliation or rationalize banking connectivity. The review is conducted in the first half of the year.